Do you know if you are considered a household employer? If you've just hired a caregiver, babysitter, housekeeper, or someone else to help you around the house, then there is a good chance you can be considered as a household employer.
When you are hiring for one of these positions, tax and payroll procedures are probably not the most important thing on your mind, and you think you will be paying cash under the table unknown to you that there's more to it. Here, we explain what makes you a household employer, what you need to know about payroll, and how to get the appropriate help if you need it.
Am I a household employer?
In the eyes of the I.R.S., you are considered a household employer if:
You pay salaries of $2,200 or more during the calendar year.
You determine the employee's type of work and what time duration is expected of the employee to complete it.
Being a household employer means you have to follow proper tax and payroll procedures, just like any other business. It is your responsibility to follow a payroll program, deduct Social Security and Medicare taxes from your employee's salary, and report those salaries to the I.R.S. The taxes you have to pay are called "nanny tax"; these taxes apply even if the employee is not a nanny.
Thanks to COVID-19, many families have opted for new care options. Learning groups and shared babysitters, and private tutors have been a trend due to eLearning and the work-from-home schedule. If you've recently hired for one of these positions, you must be on top of your payroll. The only exceptions to the nanny tax are if your household employee or nanny is:
Any employee under the age of 18
Your child under 21
Your parents
Your spouse
How household payroll is handled
As mentioned, your journey as a household employer requires you to follow instructions similar to a traditional business. To get started, you will need:
A Payroll Schedule: There are 4 types of salary management programs: monthly, semi-monthly, bi-weekly, and weekly. These hours determine when your employee will be paid. You will need to contact your state for advice because while some states allow employers to choose their preferred time, others will tell you what time to follow.
Form W-4: A W-4 form is a form your employee fills out to indicate the amount they would like to withhold from payroll taxes. This form will also contain their personal information, which they will need when preparing for the tax season.
Perfect timekeeping: Traditionally, most domestic workers are paid by the hour. While some employees may have reasonable and consistent programs, others, such as babysitters and private teachers, may have varied programs, primarily due to changes in eLearning and hybrid models. As such, you are required to have a precise timekeeping system to facilitate the employee's payroll.
Schedule H: If you pay your housekeeper cash wages, you will attach Schedule H to your income tax return to file family taxes.
If this is your first time finding out that you are a household employer, you may feel a little overwhelmed, which is okay, given the complexity of wages and taxes. You don't have to go through this alone. Some online payroll services can be very helpful when you are navigating being a household employer. We advise that you do your research because not all payroll providers are the same.
Bottom Line
Starting any new routine or working relationship takes time to become a habit. While you may have many questions at the start of your journey as a household employer, eventually, you will come to a point where things are a little easier, and you are in a good flow. While payroll isn't something you can set and forget, it gets easier to manage with a little practice and adjustment.
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